TIPP Insights: Unprecedented financial stress roils Americans

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Americans are under unprecedented financial stress. The stress is driven by skyrocketing inflation, a collapsing stock market, an impending recession, and a lack of trust in President Biden’s leadership.

According to our latest poll, conducted in early June, the deviation of the Investor’s Business Daily/TIPP Financial Stress Index from its historical average is worse by a stunning 10% or more for 33 of the 36 demographic segments we track. Financial stress affects both the rich and the poor, people of all ages, races, parties, and ideologies.

Further, the index has historical significance. This month’s reading of 69.5 is the second-highest since December 2008 (71.0), during the financial Tsunami. The only other worse reading was 69.8 at the start of the pandemic in April 2020.

The IBD/TIPP Financial Stress Index is a one-of-a-kind metric evaluating financial stress, which we began using in December 2007.   The index accurately indicates Americans’ monetary worries about paying bills and making ends meet. Consumer spending drives two-thirds of the economy. When people are stressed, they are hesitant to spend money.

We computed the index from responses to the question: thinking of your personal finances, compared to the past three months, do you feel more stressed these days, less stressed these days, or feel the same level of stress?

The index ranges from 0 to 100; the higher the number, the more the stress. A reading of 50.0 is the neutral point.

The Investor’s Business Daily/TIPP Financial Stress Index increased for the third consecutive month. The index rose by 0.2 points, or 0.3%, from 69.3 in May to 69.5 in June. Since February, the index has risen by 5.3 points or 8.3 percent.

Persistent inflation, stock market correction, job displacement due to vaccine mandates and the Great Resignation, and job insecurity exacerbate financial stress.

The momentum is accelerating, squeezing Americans. June’s reading of 69.5 is greater than the 3-month average of 68.9. And the three-month average is greater than the six-month average of 67.3, which is greater than the 12-month average of 65.8.

The chart below shows that financial stress impacts all Americans irrespective of their party affiliation. Democrats (66.6) have the lowest stress. Republicans’ stress level is 7.2 points higher (73.8). Independents’ reading of 70.0 is close to the overall reading of 69.5.

The variability of the index, as measured by the standard deviation of the index readings for the 27 months, is very similar across party lines. It is 4.4 for Democrats, 4.6 for Republicans, and 4.0 for Independents.

By The Numbers

‌‌‌The table below shows the index’s historical averages, June readings, and differences across demographic groups.  Note that all groups, but three, have positive deviations of 10% or more from their historical averages, indicating elevated stress levels.

Inflation Concerns

As we have shown earlier, 90% are concerned about inflation. Inflation is a form of taxation.

According to the Consumer Price Index (CPI), inflation rose 1.0 percent in May, rising 8.6 percent between May 2021 and May 2022.

Compared to a year ago, Americans are paying 107% more for fuel oil, 49% more for gasoline, and 30% for natural gas. Food prices have increased by 10%, while all items excluding food and energy rose by 6%.

As inflation persists, money’s purchasing power falls. Low-income households cannot absorb price increases, particularly for necessities such as food, energy, and shelter, because these consume a large portion of their income. Sharp inflation will likely impact retirees as the dollar’s purchasing power declines.

Most respondents (55%) say their wages have not kept pace with inflation. Only one in six (18%) say that it has.

Price increases in energy, food, and groceries have caused a perceptual shift, causing consumers to cut back on their spending. Almost three-quarters (73%) of respondents said they cut back on household spending. Cutting expenses was seen among people of all ages and income levels.

Here are the ten demographic groups with the highest stress levels based on a three-month simple moving average.  Politics drives some of the financial stress. Conservatives and Republicans are worried about the Biden administration’s policies.

The chart below shows the twelve demographic groups with the least stress. Blacks, Democrats, moderates, and the 65+ age group are the least stressed groups.

As the country recovers from the pandemic, it faces an inflation monster. Inflation, recession, and stagflation are the biggest worries.

Americans have lost faith in the leadership of those who control the levers of monetary and fiscal policy. The big question is whether they will change course and regain the nation’s confidence.



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